Skip to main content

India's Crypto Tax Crackdown Offshore Exchanges Under Scrutiny

 

🕵️‍♂️ India’s Crypto Tax Crackdown: Offshore Exchanges Under Scrutiny

CA Bhavesh Panpaliya | 8888755557

❓ Why are Indian crypto investors being scrutinized for using offshore exchanges like Binance?

Because they’re skipping the taxman.

Since July 2022, India made it mandatory to deduct 1% TDS on every crypto transaction. While Indian exchanges comply, foreign platforms don’t, leading many to think they found a loophole.

👉 Example: If you sold ₹1 lakh worth of Bitcoin on WazirX, you’d pay ₹1,000 as TDS. On Binance? Zero. That’s why the tax department is watching closely.

❓ Why did Indian traders move to foreign platforms in the first place?

To dodge high crypto taxes.

India taxes crypto profits at 30% and deducts 1% TDS on every sale—much higher than stock market rates. Offshore platforms seemed like a tax-free haven.

💡 Key Insight: Many assumed that if there's no auto-deduction, there’s no tax liability. That assumption is now proving costly.

❓ What tactics are traders using to avoid crypto taxes?

Quite a few, including:

  1. Foreign Exchanges
    • Believing Binance or KuCoin won’t report them.
  2. P2P (Peer-to-Peer) Deals
    • Selling USDT directly to buyers, who often skip the TDS deduction.
  3. Crypto Swaps
    • Swapping ETH for BTC without declaring it as a taxable transaction.
  4. Privacy Coins & Private Wallets
    • Using coins like Monero or Zcash, which are harder to trace.

👉 Example: A trader swaps ₹5 lakh worth of ETH for BTC on a foreign DEX. It’s taxable—but rarely gets reported.

❓ How is the Income Tax Department cracking down?

They're coming in strong:

  • 📩 Sending Notices: Asking traders to prove TDS was deducted.
  • 🔍 Tracing Transactions: Comparing crypto buys with your past tax returns.
  • 🌐 Cross-Border Data Pulls: Looking into exchange data globally.
  • 🤖 AI Surveillance: Using CASS (Computer-Assisted Scrutiny Selection) to flag suspicious activity.

💡 Key Insight: Just because it’s on-chain doesn’t mean it’s invisible.

❓ What can happen if you skip crypto tax compliance?

The risks are real:

  • ❌ Withdrawal Blocks: Even global exchanges are tightening compliance.
  • ⚖️ FEMA Violations: Moving funds abroad without disclosure = legal trouble.
  • 😵 Ignorance Isn’t Bliss: P2P and crypto swaps also need TDS deduction, but many ignore this.

👉 Example: If you’re using a private wallet and selling on Binance P2P, the buyer must deduct TDS. If not? You’re both liable.

❓ What crypto tax rules are most misunderstood?

Top 5 misunderstood rules:

  1. ✅ 1% TDS applies to every crypto sale.
  2. 💰 Flat 30% tax on profits—no slab benefit.
  3. 🔁 Crypto-to-crypto swaps are taxable.
  4. 👥 In P2P trades, the buyer must deduct TDS.
  5. 🧾 Losses? You can’t offset them against salary or stocks—only crypto gains.

❓ Isn’t this strict enforcement killing crypto innovation?

The government’s trying to balance the tightrope—enforcing compliance without suffocating the sector.
They’re making it clear: “Trade all you want, but pay your dues.”

💡 Key Insight: Crypto is not illegal—just highly regulated.

❓ So, what’s the bottom line for traders using foreign platforms?

No one is invisible anymore.

If you’re an Indian resident trading on Binance, KuCoin, or doing P2P/DEX deals, you are still liable to deduct TDS and pay tax.

🎯 Takeaway: Switch to compliant practices, file proper returns, and stay out of legal trouble. The tax net is tightening—don’t get caught.

✅ Final Pro Tip by CA Bhavesh Panpaliya:

“If you’re in crypto, treat it like any other business: plan, report, and pay. The taxman isn’t anti-crypto—he’s anti-evasion.”

Popular posts from this blog

Save Tax Legally With HUF

  What is a Hindu Undivided Family (HUF)? A Hindu Undivided Family (HUF) is a separate legal entity recognized under Indian tax law, allowing families following Hindu, Jain, Sikh, and Buddhist laws to collectively own property and manage income. It serves as a tool for family wealth management and potential tax optimization. What is the difference between a member and a coparcener in an HUF? A member of an HUF is any individual part of the family through lineal descent, marriage (for wives of male coparceners), or adoption. Members have the right to maintenance from the HUF property but generally cannot demand partition. A coparcener, on the other hand, is a member with a birthright in the joint family property. Under the Hindu Succession (Amendment) Act, 2005, both sons and daughters are coparceners by birth, with rights including demanding partition, joint ownership, limited alienation rights, and the right to question the Karta's actions. How is an HUF formed? Forming ...
Read more

Why Most Businesses Fail

Why Most Businesses Fail: A Practical Q&A on Financial Management 90% of business failures aren’t about poor products or bad luck. They’re about financial missteps. Here's how to avoid them. Q1: Why do most businesses fail? A: The #1 cause is poor financial management. Not sales. Not product quality. Not HR. Over 90% of business closures happen because founders and teams misunderstand or ignore finance fundamentals. Example: A company may keep selling aggressively without realizing it’s burning cash faster than it's earning. No amount of sales saves you from poor cash flow planning. Key Insight: Finance isn’t just for accountants. It’s embedded in every business decision, big or small. Q2: Accounting vs. Financial Management — What’s the difference? A: Accounting records what happened. Financial management decides what should happen next. Accounting = History. Financial Management = Strategy. Example: Your accountant shows...
Read more

Making Gold Work for You: Beyond the Locker

💰 Making Gold Work for You: Beyond the Locker ❓ Bank Lockers vs. Gold Monetisation Scheme (GMS) Q1: Is storing gold in a bank locker really safe? 👉 Not entirely. While lockers are secure from theft, they’re not immune to natural disasters . Example: Lovish Anand, a financial advisor, shared a real story—his friend’s heirloom jewelry rusted during a flood when water seeped into her basement locker . The insurance? Only ₹3 lakh— far less than the actual value. 🔍 Key Insight: Most bank locker insurance barely covers the real worth of your gold. Q2: What exactly is the Gold Monetisation Scheme (GMS), and how does it help? ✅ GMS lets you deposit unused gold (jewelry, bars, coins) with authorized banks. In return, you earn interest (2.25–2.5%) and keep it safe from physical damage. 📦 Your gold is: Tested for purity Weighed and recorded Secured without deterioration or theft risk 🧠 Think of it like this: Instead of gold s...
Read more